<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 27, 1998
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --- EXCHANGE ACT
For the transition period from to
Commission file number
TEKNI - PLEX, INC.
(Exact name of small business issuer as specified in its charter)
New Jersey 22-3286312
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
201 Industrial Parkway (908) 722-4800
Somerville, New Jersey 08876 Issuer's telephone number:
(Address of principal executive office)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
<PAGE> 2
TEKNI-PLEX, INC.
Page #
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheet as of March 27, 1998
and June 27, 1997................................................3
Statements of operations for the nine months and three months
ended March 27, 1998 and March 28,1997...........................4
Statements of cash flows for the nine months ended
March 27, 1998 and March 28, 1997................................5-6
Notes to consolidated financial statements.........................7-13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS......................................14-16
PART II. OTHER INFORMATION
ITEM 1. Legal proceedings...........................................17
ITEM 2. Changes in securities.......................................17
ITEM 3. Defaults upon senior securities.............................17
ITEM 4. Submission of matters to a vote of securities holders.......17
ITEM 5. Other information...........................................17
ITEM 6. Exhibits and reports on Form 8-K............................19
<PAGE> 3
TEKNI-PLEX, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 27,1998 June 27, 1997
(UNAUDITED)
------------- -------------
<S> <C> <C>
ASSETS
CURRENT:
Cash $ 13,065,000 $ 11,095,000
Accounts receivable 75,138,000 12,688,000
Inventories 83,153,000 13,315,000
Refundable income taxes -- 1,083,000
Deferred income taxes 18,788,000 1,500,000
Prepaid expenses and other current assets 6,725,000 2,030,000
------------- -------------
TOTAL CURRENT ASSETS 196,869,000 41,711,000
PROPERTY, PLANT AND EQUIPMENT, NET 127,920,000 42,389,000
INTANGIBLE ASSETS 260,301,000 36,967,000
DEFERRED CHARGES 25,451,000 5,205,000
OTHER ASSETS 7,608,000 2,757,000
------------- -------------
$ 618,149,000 $ 129,029,000
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long term debt $ 5,459,000 $ --
Accounts payable trade 41,253,000 6,139,000
Accrued payroll and benefits 9,753,000 5,189,000
Accrued interest 6,506,000 2,038,000
Income tax payable 732,000 --
Accrued liabilities - other 37,441,000 2,395,000
------------- -------------
TOTAL CURRENT LIABILITIES 101,144,000 15,761,000
------------- -------------
Long-term debt 397,855,000 75,000,000
Deferred income taxes 71,217,000 7,255,000
Other liabilities 11,969,000 616,000
------------- -------------
TOTAL LIABILITIES 582,185,000 98,632,000
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock -- --
Additional paid-in capital 41,473,000 41,473,000
Treasury stock (377,000) --
Cumulative currency translation adjustment (48,000) --
Retained deficit (5,084,000) (11,076,000)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 35,964,000 30,397,000
------------- -------------
$ 618,149,000 $ 129,029,000
------------- -------------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 4
TEKNI-PLEX, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Nine months ended
MARCH 27, MARCH 28, March 27, March 28,
1998 1997 1998 1997
(UNAUDITED) (Unaudited)
-------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
NET SALES $ 68,388,000 $ 38,233,000 $ 144,010,000 $ 109,828,000
COST OF SALES 51,236,000 27,779,000 106,460,000 81,239,000
------------ ------------ ------------- -------------
GROSS PROFIT 17,152,000 10,454,000 37,550,000 28,589,000
OPERATING EXPENSES:
Selling, general and administrative 9,714,000 4,845,000 17,969,000 11,995,000
------------ ------------ ------------- -------------
INCOME FROM OPERATIONS 7,438,000 5,609,000 19,581,000 16,594,000
OTHER EXPENSES:
Interest, net (4,526,000) (1,939,000) (8,862,000)
(6,068,000)
Other (276,000) (84,000) (435,000) (524,000)
------------ ------------ ------------- -------------
INCOME BEFORE PROVISION FOR
INCOME TAXES 2,636,000 3,586,000 10,284,000 10,002,000
PROVISION FOR INCOME TAXES 1,385,000 1,300,000 4,292,000 3,555,000
------------ ------------ ------------- -------------
NET INCOME $ 1,251,000 $ 2,286,000 $ 5,992,000 $ 6,447,000
------------ ------------ ------------- -------------
</TABLE>
4
See accompanying notes to financial statements.
<PAGE> 5
TEKNI-PLEX, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED Nine months ended
MARCH 27,1998 March 28,1997
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited) (Unaudited)
<S> <C> <C>
Net income $ 5,992,000 $ 6,447,000
Adjustments to reconcile net income to net cash provided by
Operating activities:
Depreciation and amortization 8,167,000 7,814,000
Deferred income taxes 674,000 1,080,000
Changes in operating assets and liabilities:
Accounts receivable (7,010,000) (816,000)
Inventories (1,683,000) (538,000)
Prepaid expenses and other current assets (2,510,000) (233,000)
Income taxes 1,815,000 (99,000)
Accounts payable 3,117,000 249,000
Accrued interest 4,163,000 (993,000)
Accrued expenses 5,286,000 379,000
------------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 18,011,000 13,290,000
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,184,000) (2,751,000)
Acquisitions (309,668,000) --
Purchase of treasury stock (377,000) --
Deposits and other assets (39,000) (22,000)
------------- ------------
NET CASH USED IN INVESTING ACTIVITIES (313,268,000) (2,773,000)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt financing costs (17,978,000) (28,000)
Borrowings/payments under line of credit 209,000 (6,583,000)
Borrowings/repayments of long-term debt 314,996,000 (3,125,000)
------------- ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 297,227,000 (9,736,000)
------------- ------------
NET INCREASE IN CASH 1,970,000 781,000
CASH, BEGINNING OF PERIOD 11,095,000 1,048,000
------------- ------------
CASH, END OF PERIOD $ 13,065,000 $ 1,829,000
------------- ------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest $ 4,308,000 $ 4,214,000
Income taxes 3,268,000 2,760,000
------------- ------------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 6
TEKNI-PLEX, INC.
STATEMENTS OF CASH FLOWS
INVESTING ACTIVITIES:
<TABLE>
<S> <C>
The Company purchased certain assets and assumed
certain liabilities of PurePlast, Inc. effective July 3, 1997,
for approximately $2,292,000 in cash. In conjunction
with the acquisition, liabilities were assumed as follows:
eFair value of assets acquired $ 1,802,000
Goodwill 1,734,000
Cash paid (2,292,000)
-----------
LIABILITIES ASSUMED 1,244,000
-----------
The Company purchased the stock of PureTec Corporation effective March 3, 1998,
for approximately $310,000,000 in cash. In conjunction with the acquisition,
liabilities were assumed as follows:
Fair Value of Assets $ 231,000,000
Goodwill 224,000,000
Cash paid (310,000,000)
-------------
LIABILITIES ASSUMED $ 145,000,000
-------------
</TABLE>
6
<PAGE> 7
TEKNI-PLEX, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - GENERAL
Tekni-Plex, Inc. is a Delaware Corporation based in New Jersey, and is a leading
manufacturer in a number of related markets for plastic products and materials.
These include medical and pharmaceutical applications and a wide variety of high
value-added packaging products.
In the opinion of management, all adjustments considered necessary for a fair
presentation have been included. For further information to the audited
financial statements and footnotes thereto included in the Company's Annual
Report on form S-4 for the year ended June 27, 1997.
NOTE 2 - ACQUISITIONS
On March 3, 1998, the Company purchased 100% of the common stock of PureTec
Corporation ("PureTec") for approximately $310,000,000. The acquisition is
recorded under the purchase method and PureTec's operations have been reflected
in the statement of operations since that date. As a result of the acquisition,
goodwill of approximately $224,000,000 has been recorded, which is being
amortized over 15 years.
In connection with the acquisition, a reserve of $18,000,000 has been
established for the costs to integrate PureTec's operations with the Company and
to eliminate duplicate personnel.
The following table presents the unaudited pro forma result of operations as
though the acquisition of PureTec occurred on June 29, 1996:
<TABLE>
<CAPTION>
Nine Months Year Ended
March 27, 1998 June 27, 1997
-------------- -------------
<S> <C> <C>
Net Sales $ 341,895,000 $ 460,070,000
Operating Profit 28,796,000 40,703,000
Loss from Continuing Operations (5,565,000) (3,938,000)
</TABLE>
The pro forma results are not necessarily indicative of what actually would have
occurred if the acquisition had been in effect for the entire periods presented.
In addition, they are not intended to be a projection of future results and do
not reflect any synergies that might be achieved from combined operations.
On July 3, 1997, the Company purchased 100% of the stock of PurePlast, Inc.
("PurePlast") for $2,292,000. Pro forma results of operations, assuming the
PurePlast acquisition had occurred on June 29, 1996, would not be materially
different from the results presented.
7
<PAGE> 8
TEKNI-PLEX, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - INVENTORIES
Inventories as of March 27, 1998 and June 27, 1997 are summarized as follows:
<TABLE>
<CAPTION>
MARCH 27, 1998 June 27, 1997
-------------- -------------
<S> <C> <C>
Raw materials $27,765,000 $ 5,943,000
Work-in-process 5,326,000 3,362,000
Finished goods 50,062,000 4,010,000
----------- -----------
$83,153,000 $13,315,000
----------- -----------
</TABLE>
8
<PAGE> 9
TEKNI-PLEX, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
Quarter Ended MARCH 27, June 27,
1998 1997
------------ -----------
<S> <C> <C>
Senior subordinated notes issued March 3,
1998 at 9 1/4% due March 1, 2008. Interest
payable semi-annually. 200,000,000 --
Senior subordinated notes issued April 4,
1997 at 11 1/4% due April 1, 2007. Interest
payable semi-annually. 75,000,000 75,000,000
Term notes are payable in increasing
quarterly principal installments commencing
June 3, 1998 with final payment of
$8,125,000 due March 3, 2006. The term
notes bear interest, payable quarterly, at
LIBOR plus 2.25% and 2.75% (7.9375% and
8.4375% at March 27, 1998). 115,000,000 --
11 1/4% Senior Secured Notes due December
1, 2003 (discounted at an estimated effective
interest rate of 12.7%). 1,550,000 --
7% Subordinated Notes (principal amount of
$1,192,000 issued in connection with the
acquisition of Ozite (discounted at an
estimated effective interest rate of 16%) 646,000 --
Mortgage payable, bearing interest at prime
plus 1 1/2%, payable in monthly installments
of $4,000, plus interest with a balloon
payment of $322,000 due January, 2000. 311,000 --
5.25% Direct Loan Promissory Note, payable
in 24 equal monthly installments of interest
only commencing March 1996; and thereafter
payable by 12 equal monthly installments of
$10,000 plus interest, commencing March 231,000 --
1998 through February 1999.
6.10% Foreign Term Loan payable in
Belgium Francs, with interest in twenty
quarterly installments from June 1996 through
March 2001. 677,000 --
</TABLE>
9
<PAGE> 10
TEKNI-PLEX, INC.
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C>
3.75% Foreign Term Loan payable in
Belgium Francs, with five equal yearly
installments with first payment commencing
December 1997. 638,000 --
8.40% Foreign Term Loan payable in Italian
Lira, repayable semi-annually including
principal and interest through 2001. 1,276,000 --
5.30% Foreign Term Loan payable in Italian
Lira, with five equal yearly installments with
first payment commencing May 1998. Interest
is payable quarterly. 1,058,000 --
Foreign Term Loan payable in British
Pounds, in 13 equal semi-annual installments
of $151,000, commencing June 1998, with a
final payment due December 2004 at 1.75%
plus LIBOR (approximately 7.75% at July
31, 1997). 2,518,000 --
Capitalized Lease Obligation, 20 years,
commencing February 1997. 3,851,00 --
PurePlast Line of Credit for $722,000 (CDN
$1,000,000) at the prime rate, plus 1/4%. The
line is due on demand and is unsecured. 477,000 --
PurePlast Term Loan in the amount of
$93,000 (CDN $133,000). The loan is due in
monthly payments of $4,000 (CDN $6,000),
plus interest at prime plus 1 1/4%. 81,000 --
------------ -----------
403,314,000 75,000,000
Less: Current maturities 5,459,000 --
------------ -----------
$397,855,000 $75,000,000
------------ -----------
</TABLE>
10
<PAGE> 11
TEKNI-PLEX, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - CONTINGENCIES
In January 1993 and 1994, PureTec's Belgian subsidiary received income tax
assessments aggregating approximately $2,114,000 (75,247,000 Belgian Francs) for
the disallowance of certain foreign tax credits and investment losses claimed
for the years ended July 31, 1990 and 1991. Additionally, in January 1995, the
subsidiary received an income tax assessment of approximately $902,000
(32,083,000 Belgian Francs) for the year ended July 31, 1992. By Belgian law,
these assessments are capped at the values above, and do not continue to accrue
additional penalties or interest. Although the future outcome of these matters
are uncertain, PureTec believes that its tax position was appropriate and that
the assessments are without merit. Therefore, PureTec has appealed and has not
paid or accrued for the assessments. Based on the advise of legal counsel in
Belgium, PureTec believes that the assessment appeals will be accepted by the
tax authorities in Belgium, although there can be no assurance whether or when
such appeals will be accepted.
The Company is a party to various other legal proceedings arising in the normal
conduct of business. Management believes that the final outcome of these
proceedings will not have a material adverse effect on the Company's financial
position or results of operations.
11
<PAGE> 12
TEKNI-PLEX, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Tekni-Plex, Inc. issued 11.25% Senior Subordinated Notes in April 1997 and 9.25%
Series B Senior Subordinated Notes in February 1998. These notes are guaranteed
by all domestic subsidiaries of Tekni-Plex. At June 27, 1997 there were no
non-guarantor subsidiaries. The following condensed consolidating financial
statements present separate information for Tekni-Plex and its domestic
subsidiaries (the "Guarantors") and the foreign subsidiaries (the
"Non-Guarantors") and should be read in connection with the consolidated
financial statements of the Company.
Condensed Consolidating Statements of Earnings
Nine Months Ended March 27, 1998
<TABLE>
<CAPTION>
Guarantors Non-Guarantors Consolidated
---------- -------------- ------------
<S> <C> <C> <C>
Sales $ 136,977,000 $ 7,033,000 $ 144,010,000
Cost of Sales 101,378,000 5,082,000 106,460,000
------------- ----------- -------------
Gross profit 35,599,000 1,951,000 37,550,000
Selling, General and Administrative 17,248,000 721,000 17,969,000
------------- ----------- -------------
Operating profit 18,351,000 1,230,000 19,581,000
Interest expense (8,848,000) (14,000) (8,862,000)
Other income (221,000) (214,000) (435,000)
------------- ----------- -------------
Earnings before income taxes 9,282,000 1,002,000 10,284,000
Provision for income taxes 3,792,000 500,000 4,292,000
------------- ----------- -------------
Net earnings $ 5,490,000 $ 502,000 $ 5,992,000
============= =========== =============
</TABLE>
Three Months Ended March 27, 1998
<TABLE>
<CAPTION>
Guarantors Non-Guarantors Consolidated
---------- -------------- ------------
<S> <C> <C> <C>
Sales $ 64,142,000 $ 4,246,000 $ 68,388,000
Cost of Sales 48,242,000 2,994,000 51,236,000
------------ ----------- ------------
Gross profit 15,900,000 1,252,000 17,152,000
Selling, General and Administrative 9,335,000 379,000 9,714,000
------------ ----------- ------------
Operating profit 6,565,000 873,000 7,438,000
Interest expense (4,531,000) 5,000 (4,526,000)
Other income (62,000) (214,000) (276,000)
------------ ----------- ------------
Earnings before income taxes 1,972,000 664,000 2,636,000
Provision for income taxes 1,020,000 365,000 1,385,000
------------ ----------- ------------
Net earnings $ 952,000 $ 299,000 $ 1,251,000
============ =========== ============
</TABLE>
12
<PAGE> 13
TEKNI-PLEX, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Condensed Consolidating Balance Sheet
March 27, 1998
<TABLE>
<CAPTION>
Guarantors Non-Guarantors Elimination Consolidated
---------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Current:
Cash $ 8,268,000 $ 4,797,000 $ 13,065,000
Accounts Receivable 65,347,000 9,791,000 75,138,000
Inventory 74,294,000 8,859,000 83,153,000
Deferred taxes 18,788,000 -- 18,788,000
Prepaid and other current assets 2,545,000 4,180,000 6,725,000
------------- ---------- ------------
169,242,000 27,627,000 196,869,000
------------- ---------- ------------
Investment in Subsidiaries 658,000 -- (658,000) --
Property, plant and equipment 111,125,000 16,795,000 127,920,000
Intangible Assets 260,301,000 -- 260,301,000
Deferred Charges 25,451,000 -- 25,451,000
Other Assets 6,284,000 1,324,000 7,608,000
------------- ---------- ------------- ------------
$ 573,061,000 $ 45,746,000 $ (658,000) $618,149,000
============= ============= ============= ============
Current liabilities:
Current portion of long-term Debt $ 3,186,000 $ 2,273,000 $54,459,000
Accounts Payable 35,595,000 5,658,000 41,253,000
Accrued Payroll 9,753,000 -- 9,753,000
Accrued Interest 6,268,000 238,000 6,506,000
Income Taxes Payable 732,000 -- 732,000
Accrued Liabilities-Other 33,007,000 4,434,000 37,441,000
------------- ---------- ------------
88,541,000 12,603,000 101,144,000
------------- ---------- ------------
Long Term Debt 389,635,000 8,220,000 397,855,000
Deferred income taxes 69,755,000 1,462,000 71,217,000
Intercompany 1,161,000 (1,161,000) --
Other Liabilities 10,792,000 1,177,000 11,969,000
------------- ---------- ------------
559,884,000 22,301,000 582,185,000
------------- ---------- ------------
Stockholder's equity
Common Stock -- 658,000 (658,000) --
Additional paid-in Capital 41,473,000 -- 41,473,000
Treasury Stock (377,000) -- (377,000)
Cumulative Currency Translation (263,000) 215,000 (48,000)
Adjustment (27,656,000) 22,572,000 (5,084,000)
------------- ---------- ------------- ------------
Retained Earnings 13,177,000 23,445,000 (658,000) 35,964,000
------------- ---------- ------------- ------------
$ 573,061,000 45,746,000 $ (658,000) $618,149,000
============= ============= ============= ============
</TABLE>
13
<PAGE> 14
TEKNI-PLEX, INC.
NOTES TO FINANCIAL STATEMENTS
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
First nine months of 1998 Compared with the first nine months of 1997
Net Sales increased to $144.0 million for the nine months ended March 27, 1998
from $109.8 million for the nine months ended March 28, 1997. This represents an
increase of $34.2 million or 31.1%. The increased sales are primarily attributed
to the acquisition of PureTec and PurePlast and increased demand for our
pharmaceutical packaging products.
Cost of Goods Sold increased to $106.5 million for the nine months ended March
27, 1998 from $81.2 million for the nine months ended March 28, 1997. Expressed
as a percentage of net sales, cost of goods sold fell to 73.9% for the nine
months ended March 27, 1998 from 74.0% for the nine months ended March 28, 1997.
The decline in cost of goods sold as a percentage of net sales was due primarily
to an improved sales mix toward higher value-added products, and improved fixed
cost absorption from higher sales volumes.
Gross Profit as a result, increased to $37.6 million or 26.1% of net sales for
the nine months ended March 27, 1998, from $28.6 million or 26.0% of net sales
for the same period in 1997.
Selling, general and administrative expenses increased to $18.0 million or 12.5%
of net sales for the nine months ended March 27, 1998 from $12.0 million or
10.9% of net sales for the same period in 1997. This is due primarily to the
acquisition of PureTec and increases in administrative costs and higher selling
expenses associated with the global expansion of our pharmaceutical business.
Operating profit increased to $19.6 million or 13.6% of net sales for the nine
months ended March 27, 1998, from $16.6 million or 15.1% for the same period in
1997, for the reasons stated above.
Interest expense increased to $8.9 million or 6.2% of net sales for the nine
months ended March 27, 1998, from $6.0 million or 5.5% of net sales for the same
period in 1997 due primarily to a an issuance of new bonds and notes to acquire
PureTec.
Provision for income taxes increased to $4.3 million or 3.0% of net sales for
the nine months ended March 27, 1998, from $3.6 million or 3.2% for the same
period in 1997. The Company's effective tax rate was 42% for the nine months
ended March 27, 1998 compared to 36% for the same period in 1997. The increase
in effective tax rate between periods is due primarily to non-deductible
amortization and the depletion of tax carryover losses and credits.
Net income decreased to $6.0 million or 4.2% of net sales for the nine months
ended March 27, 1998, from $6.4 million or 5.9% of net sales for the same period
in 1997, for the same reasons discussed above.
14
<PAGE> 15
TEKNI-PLEX, INC.
NOTES TO FINANCIAL STATEMENTS
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
THIRD QUARTER OF 1998 COMPARED WITH THE THIRD QUARTER OF 1997
NET SALES increased to $68.4 million for the three months ended March 27, 1998
from $38.2 million for the three months ended March 28, 1997. This represents
increase of $30.2 million or 79.1%. The increased sales are primarily attributed
to the acquisition of PureTec and PurePlast, and increased demand for our
pharmaceutical packaging products.
Cost of Goods Sold increased to $51.2 million for the three months ended March
27, 1998 from $27.8 million for the three months ended March 28, 1997. Expressed
as a percentage of net sales, cost of goods sold increased to 74.9% for the
three months ended March 27, 1998 from 72.7% for the three months ended March
28, 1997. The increase in cost of goods sold as a percentage of net sales was
due primarily to the acquisition of PureTec.
Gross Profit as a result, increased to $17.2 million or 25.1% of net sales for
the three months ended March 27, 1998, from $10.5 million or 27.3% of net sales
for the same period in 1997.
Selling, general and administrative expenses increased to $9.7 million or 14.2%
of net sales for the three months ended March 27, 1998 from $4.8 million or
12.7% of net sales for the same period in 1997. This is due primarily to the
acquisition of PureTec and increased administrative costs and higher selling
expenses associated with the global expansion of our pharmaceutical business.
Operating profit increased to $7.4 million or 10.9% of net sales for the three
months ended March 27, 1998, from $5.6 million or 14.7% for the same period in
1997, for the reasons stated above.
Interest expense increased to $4.5 million or 6.6% of net sales for the three
months ended March 27, 1998, from $1.9 million or 5.1% of net sales for the same
period in 1997. This is due to the issuance of new debt and term notes to
acquire PureTec.
Provision for income taxes decreased to $1.4 million or 2.0% of net sales for
the three months ended March 27, 1998, from $1.3 million or 3.4% for the same
period in 1997. The Company's effective tax rate was 53% for the three months
ended March 27, 1998 compared to 36% for the same period in 1997. The increase
in effective tax rate between periods is due primarily to non-deductible
amortization and the depletion of tax carryover losses and credits.
Net income decreased to $1.3 million or 1.8% of net sales for the three months
ended March 27, 1998, from $2.2 million or 6.0% of net sales for the same period
in 1997, for the same reasons discussed above.
15
<PAGE> 16
TEKNI-PLEX, INC.
NOTES TO FINANCIAL STATEMENTS
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended March 27, 1998, net cash provided by operating
activities was $18.0 million compared to $13.3 million for the same period in
1997. This was due primarily to the acquisition of PureTec.
Working capital at March 27, 1998 was $95.7 million compared to $26.0 million at
June 27, 1997. The increase working capital at March 27, 1998 was due primarily
to the acquisition of PureTec.
As of March 27, 1998 and June 27, 1997, there was no outstanding balance under
the $90 million revolving credit line of the Existing Credit Facility.
The Company's capital expenditures for the nine months ended March 27, 1998 and
March 28, 1997 were $3.2 million, $2.8 million respectively. Management expects
that annual capital expenditures will increase from historical levels during the
next few years as the Company makes improvements in the PureTec plants as well
as those previously controlled.
Apart from acquisitions, the Company's principal uses of cash for the next
several years will be debt service, capital expenditures and working capital
requirements. Management believes that cash generated from operations plus
funds from the current credit facilities will be sufficient to meet the
Company's expected debt service requirements, planned capital expenditures, and
operating needs. However, there can be no assurance that sufficient funds will
be available from operations or borrowings under the New Credit Facility to
meet the Company's cash needs to the extent management anticipates. The Credit
Facility will provide the Company with the increased flexibility to make
capital expenditures and acquisitions that management believes will provide an
attractive return on investment. To the extent the Company pursues future
acquisitions, the Company may be required to obtain additional financing. There
can be no assurance that it will be able to obtain such financing in amounts
and on terms acceptable to it.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, SFAS 130, "Reporting Comprehensive Income," and SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information," were
issued. SFAS 130 addresses standards for reporting and display of comprehensive
income and its components and SFAS 131 requires disclosure of reportable
operating segments. Both statements are effective for the Company's 1999 fiscal
year. The Company will be reviewing these pronouncements to determine their
applicability to the Company, if any.
16
<PAGE> 17
TEKNI-PLEX, INC.
NOTES TO FINANCIAL STATEMENTS
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In January 1993 and 1994, PureTec's Belgian subsidiary received income tax
assessments aggregating approximately $2,114,000 (75,247,000 Belgian Francs) for
the disallowance of certain foreign tax credits and investment losses for the
year ended July 31, 1990 and 1991. Additionally, in January 1995, the subsidiary
received an income tax assessment of approximately $902,000 (32,083,000 Belgian
Francs) for the year ended July 31, 1992. By Belgian law, these assessments are
capped at the values above, and do not continue to accrue additional penalties
or interest. Although the future outcome of these matters are uncertain, PureTec
believes that its tax position was appropriate and that the assessments are
without merit. Therefore, PureTec has appealed and has not paid or accrued for
the assessments. Based on the advise of legal counsel in Belgium, PureTec
believes that the assessment appeals will be accepted by the tax authorities in
Belgium, although there can be no assurance whether or when such appeals will be
accepted.
The Company is a party to various other legal proceedings arising in the normal
conduct of business. Management believes that the final outcome of these
proceedings will not have a material adverse effect on the Company's financial
position or results of operations.
Item 2. Changes in Securities
none
Item 3. Defaults Upon Senior Securities
none
Item 4. Submission of Matters to a Vote of Securities holders
not applicable
Item 5. Other Information
none
Item 6. Exhibits and Reports on Form 8-K
Form 8-K filed March 18, 1998
Form 8-K/A filed May 7, 1998
Exhibit 27
17
<PAGE> 18
TEKNI-PLEX, INC.
NOTES TO FINANCIAL STATEMENTS
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TEKNI-PLEX, INC.
May 11, 1998
By: /s/ F. Patrick Smith
-------------------------------------
F. Patrick Smith
Chairman of the Board and
Chief Executive Officer
By: /s/ Kenneth W. R. Baker
-------------------------------------
Kenneth W. R. Baker
President and Chief Operating Officer
and Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TEKNI-PLEX,
INC. STATEMENT OF EARNINGS FOR THE NINE - MONTH PERIOD ENDED MARCH 27, 1998 AND
BALANCE SHEET AS AT MARCH 27, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-03-1998
<PERIOD-START> JUN-28-1997
<PERIOD-END> MAR-27-1998
<CASH> 13,956
<SECURITIES> 0
<RECEIVABLES> 75,138
<ALLOWANCES> 1,824
<INVENTORY> 83,153
<CURRENT-ASSETS> 196,869
<PP&E> 212,046
<DEPRECIATION> 83,126
<TOTAL-ASSETS> 618,149
<CURRENT-LIABILITIES> 101,144
<BONDS> 275,000
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 618,149
<SALES> 68,388
<TOTAL-REVENUES> 68,388
<CGS> 51,236
<TOTAL-COSTS> 51,236
<OTHER-EXPENSES> 9,714
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,526
<INCOME-PRETAX> 2,636
<INCOME-TAX> 1,385
<INCOME-CONTINUING> 1,251
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 1,251
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